What is meant by Speculative Business Income?

As per section 43(5) of the Income Tax Act 1961, Speculative Business Income includes profits earned from trading intraday/non-delivery in equity shares (shares sold before they come into your demat account). 

Speculative Trading - It is called speculative as the income is based on some future event and not realized until after it has been earned. It is earned from a business activity in which the taxpayer has a substantial risk of losing money. 

In the world of trading, speculation means conducting a transaction that has substantial risk of losing value. The risk of loss is more than offset by the possibility of a substantial gain.

An investor who purchases a speculative investment is likely focused on price fluctuations. That is, the risk associated with the investment is high, but the investor is typically more concerned about generating a profit based on market value changes for that investment rather than on long-term investing.

Speculative business income is added to your total income, and taxes are applicable based on the tax bracket you fall under.

For example,
Mr. Pravas earns Rs. 5 lakhs as salary and Rs. 5 lakhs as profits from stock intraday trading during the financial year. Hence, you will be taxed as per the applicable income tax slab on your total income of Rs. 10 lakhs.   

Income earned from F&O is classified as a Non-speculative business income.

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